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# All You Need to Know About Price Index and Its Types!

By Michelle Johnson
4 Apr, 2018
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A price index can be defined as the number or percentage by which the prices of a certain product has differed or varied over a period of time say a month with respect to a reference number of a year.
The initial introduction of price index was made to evaluate the cost of living so as to ascertain a percentage increase in the wages to better the standard of living. The price index is also employed to view the differences in cost in different states and countries.
Price index and its aspects may be a confusing topic for students to relate to in the initial times. Since it is a vital part of economics students cannot afford to leave out this topic. If done so, they are bound to lose out on valuable marks in assessments.
But with practice and regular dealing with this topic they surely attain finesse in composing price index homework answers without any extra help.
Learn how to calculate price index
The simplest way to calculate the price index of a particular product is to consider the market basket price of that product for a particular year and divide it by the market basket price of the base year followed by multiplying it by 100.
For a detailed construction of price index, we have to begin by choosing the base year. Then we have to select the different products and services we want to compare and then evaluate their respective current prices and the prices in the base year. The ratio of these will give the price index for the respective products.
The correct procedure for constructing a price index in included in the course of syllabus of many universities. Hence students are advised to know them since is this apart from to-the-point price index homework answers, is an easy way of gaining a lot of marks in the exams.
Problems faced while calculating price index

• Prioritizing of commodities

The process of accumulating the relative charges for several different commodities comes on as a challenge. They are needed to be arranged in order of their significance since not all commodities are of similar priority. For example, at any given day the price of wheat will have more importance than that of pepper.
But the problem in doing this is that over the years the degree of priority of commodities tends to alter.
Such as there might be some goods that become obsolete due to an introduction of new and improved ones. Therefore there comes a time when the accuracy of such calculations becomes vague. Hence more the difference of time the less substantial the comparison of the prices becomes.

• Sampling of data

While conducting a procedure of price index calculation, data collection is the biggest and the most elaborate task. This is a factor that students must take into account to help them solve complex problems and other price index homework answers.
Sampling is by far the most necessary step. But the large the amount of data or here the prices extend the greater the difficulty of collecting them becomes.
We should also keep in mind that prices are bound to differ with changes in geographic dimensions. Hence sampling is time-consuming, requires extensive efforts, and in many occasions inaccurate.

• The variance of quality

Although the problems mentioned above can be tackled at times, but one issue which remains unresolved is the condition of the variance of quality with changes in geography. In our rapidly evolving world, it is absolutely impossible to obtain goods of the same quality as our ancestors used to.
With passing time the quality has either improved in some cases or deteriorated. Hence there isnâ€™t a full-proof method to ascertain quality changes of commodities.
One might take into account two similar periods to present a comparison solely between the two in terms of the quality of a particular product, but mostly they lack precision.
Knowing the limitations of price index will help students to learn the topic with greater depth. They can eventually frame flawless price index homework answers. This will save time and will surely be enough to earn them better grades in subsequent exams.
Types of price index

• Consumer price index

This method analyzes the price of several consumer services and goods which include food, health care, transportation, and shelter. This is calculated by considering the price difference of each of such goods and services and then calculating their average. Any kind of alterations in consumer price index or CPI can be considered connected with the cost of living.
Consumer price index is the most commonly used statistical evaluation techniques to identify and examine any period of deflation or inflation in an economy.

• Retail price index

Retail price index is employed to track the difference in the prices of goods in a fixed basket over a certain period of time. It is considered one of the two vital consumer inflation measures. Retail price index comprises of the goods that are left out by consumer price index which can be accounted as an advantage. Although both RPI and CPI determines price difference for a distinct target population.
The formulae used for calculation of the retail price index and consumer price index differ by a factor named as the formula effect.

• Wholesale price index

The whole sale price index or WPI evaluates and reports the changes in the prices of any goods and services in the levels prior to that of the retail price index. It depicts the average changes in the prices of goods and services over the years and is mostly obtained in percentage or ratio. WPI also indicates an economyâ€™s state of inflation.
In the present times even if there are certain countries that still rely on WPI countries like the US uses another technique called producer price index as a replacement.
There are numerous books written by eminent economists on this topic. Experts always advise students to step out into the real world and read their experiences and deductions on the topics they are learning in colleges. This will prepare them for the best and will add to their level of knowledge on not only this particular subject matter but also beyond.
Students need not travel huge lengths just to learn the suitable methods of construct price index homework answers or to write their papers. They can always avail the option of consult online tutorial services for any kind of assistance with their papers. These service providers are always present at their service.
Not only students, but parents are also advised to consult these online portals. If they find out that their children are struggling with their projects and assignments and finding it difficult to make ends meet, they must surely consider taking help from the experts.
So now that there are so many ways of improving the grades and also add to the academic betterment of the students no one should refrain from the help they can achieve. Everyone deserves to bring out the best in them and give their best in all their exams and if some amount of guidance can help them do so than there is nothing like it.

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